Correlation Between Sichuan Expressway and Zhejiang Expressway
Can any of the company-specific risk be diversified away by investing in both Sichuan Expressway and Zhejiang Expressway at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Sichuan Expressway and Zhejiang Expressway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sichuan Expressway and Zhejiang Expressway Co, you can compare the effects of market volatilities on Sichuan Expressway and Zhejiang Expressway and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Sichuan Expressway with a short position of Zhejiang Expressway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Expressway and Zhejiang Expressway.
Diversification Opportunities for Sichuan Expressway and Zhejiang Expressway
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Sichuan and Zhejiang is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Expressway and Zhejiang Expressway Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Expressway and Sichuan Expressway is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Sichuan Expressway are associated (or correlated) with Zhejiang Expressway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Expressway has no effect on the direction of Sichuan Expressway i.e., Sichuan Expressway and Zhejiang Expressway go up and down completely randomly.
Pair Corralation between Sichuan Expressway and Zhejiang Expressway
Assuming the 90 days horizon Sichuan Expressway is expected to generate 2.57 times less return on investment than Zhejiang Expressway. But when comparing it to its historical volatility, Sichuan Expressway is 4.8 times less risky than Zhejiang Expressway. It trades about 0.09 of its potential returns per unit of risk. Zhejiang Expressway Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 60.00 in Zhejiang Expressway Co on November 2, 2024 and sell it today you would earn a total of 5.00 from holding Zhejiang Expressway Co or generate 8.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 27.89% |
| Values | Daily Returns |
Sichuan Expressway vs. Zhejiang Expressway Co
Performance |
| Timeline |
| Sichuan Expressway |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Zhejiang Expressway |
Sichuan Expressway and Zhejiang Expressway Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sichuan Expressway and Zhejiang Expressway
The main advantage of trading using opposite Sichuan Expressway and Zhejiang Expressway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sichuan Expressway position performs unexpectedly, Zhejiang Expressway can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Zhejiang Expressway will offset losses from the drop in Zhejiang Expressway's long position.The idea behind Sichuan Expressway and Zhejiang Expressway Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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